Who will save Britain from its never-ending slump?

The huge hole at the centre of the Autumn Budget goes beyond any of the fiscal measures announced. The substance of the statement made clear that this government’s bold talk about economic renewal does not translate into a serious pro-growth plan that might address the fundamental challenges of low investment and poor productivity.

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How to bring about a high-wage economy

According to some pundits, the empty petrol stations and gaps on supermarket shelves are a forewarning of another ‘winter of discontent’ – a reference to 1978-9, when widespread strike action brought the UK to a standstill.

In the energy crisis, some see a return to the oil crisis of 1973-4, when OPEC imposed an oil embargo on the likes of the UK and the US because of their support for Israel during the Yom Kippur War.

And, as prices rise across the board, there is a great deal of speculation about a return of 1970s-style ‘stagflation’, when economic stagnation co-existed with sharply rising prices, precipitating a cost-of-living crisis.

As evocative as these trips down economic memory lane are, they do not help us understand what is going on today. The general fashion for reaching for old labels, such as new New Deals or new Cold Wars, to describe the present often obscures what is distinctive about the contemporary moment – and this certainly applies to our current economic situation.

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A ‘rebound’ to the Old Normal is not good enough

At the end of April, Barclays boss Jes Staley was forecasting that 2021 would see the strongest boom in Britain since the aftermath of the Second World War. The emerging consensus among economists is only a little less ebullient in anticipating the fastest pace of growth since 1989. The Bank of England’s chief economist, Andy Haldane, captured the upbeat mood: ‘As I’ve been saying for months – drawing on the economics of coiled springs, and crouching tigers, and “Chicken Lickens” – I do think more likely than not we are [set] for a rapid-fire recovery. That is coming, and I think that is coming soon.’

The upgraded forecasts for Britain’s economic growth this year and next from the likes of the IMF and the EY ITEM Club are quite feasible. However, it is short-sighted to think a rapid bounce-back over the next year or so will mean a robust long-term recovery. Moreover, talk of a ‘great rebound’ could also reinforce the tendency of successive governments to abandon their economic responsibilities to help the private sector create new growth sectors with enough decent well-paying jobs for people.

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Another crisis wasted

At El Alamein in 1942, British forces secured their first military victory of the Second World War. Winston Churchill assessed that Britain and its allies had ‘perhaps’ just reached the ‘end of the beginning’ of the war. But that didn’t stop him and other Western leaders starting to plan for life after the war. In Britain the government’s Beveridge Report was published in November that year, paving the way to the expanded welfare state that became a hallmark for the postwar domestic settlement. Less than two years later, with Allied armies only weeks into fighting their way across Europe and still heavily engaged in the Asia-Pacific theatre of war, their countries’ representatives convened in New Hampshire’s Bretton Woods. There they charted out what became the postwar international economic and monetary architecture that operated for the ensuing quarter century.

These ambitious initiatives remind us that huge crises, such as our coronavirus pandemic, used to be seized as opportunities to undertake radical longer-term planning. Judging by this week’s UK Budget package, this is not the case anymore. Times like this demand bold economic thinking. Rishi Sunak has squandered that opportunity.

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The economic transformation we need

One legacy of the pandemic has been to bring government activism out of the shadows. Whether you criticise or support how governments managed the pandemic, it is indisputable that their actions and inactions were of huge consequence to our lives and to the economy. So far, though, this acknowledgment has yet to unmask the myth that the past 40 years has been a period of state economic inactivity. Until this is understood, the current debate about state economic intervention will be misleading, when what we really need is a state-led shake-up of the failing status quo.

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